China's auto industry is expected to grow at a moderate pace this year amid concerns about oversupply and fierce market competition, according to a new report.

In an attempt to address the worries, the government said it will offer tax and other incentives as it seeks to shore up one of China's most important industries.

Vehicle sales in the world's third-largest auto market are expected to reach 6.4 million units this year, up 13 percent from 2005, according to the China Association of Automobile Manufacturers.

The growth rate of the auto industry has slowed considerably over the past two years as the government pressed the banks to restrict auto loans and took other steps to slow the booming sector.

Gone were the heady days of 2003 when Chinese carmakers sold 4.39 million vehicles, up 34.21 year from the year before. In 2004, sales grew only 15 percent and were up 12 percent over the first 11 months of last year.

But there were more than a few bright spots in the second half of 2005, as more than 80 percent of China's automakers achieved their sales targets even before the year ended and were busy expanding their production capacity and raising sales targets for 2006.

The future holds even more promise. Domestic vehicle sales are estimated to surge as high as 9 million units by the end of 2010, compared with a projected 5.8 million units for 2005, according to the association.

The growth potential is huge for an increasingly wealthy country. Only eight in every 1,000 Chinese own a car compared with 900 out of 1,000 Americans.

But China produce 2 million vehicles more than it needs at present. And it's planning plants capable of building more than 8 million additional units, according to Ma Kai, the director of the National Development and Reform Commission.

The government said it will offer tax breaks and other policies to encourage energy-efficient cars and halt production of surplus model types.

Editor: Yan